For more than a year, investment management firms have been pushing for a bitcoin exchange-traded fund (ETF), a financial vehicle which would allow retail customers to purchase the cryptocurrency through stock brokerage accounts. To date, though, the US Securities and Exchange Commission has nixed—or delayed decisions on—every proposal for a crypto-linked ETF.
To the casual bitcoin investor, the agency’s hesitation to approve a bitcoin ETF may seem confusing. After all, cryptocurrencies are widely available on other platforms, including US-based digital asset exchanges like Coinbase and Gemini. In a matter of hours, a new user can create an account and buy bitcoin through one of these services with ease. So, why can’t they do it through an ETF?
Proponents say a bitcoin ETF would make the cryptocurrency more widely available to mainstream investors. It could enhance price discovery and liquidity, potentially erasing premiums paid for bitcoin managed by third parties like Grayscale, a digital currency investment firm. Furthermore, an ETF would place bitcoin alongside equities in investment portfolios, giving more customers a comprehensive view of their overall assets. However, it seems the SEC hasn’t been convinced of these potential benefits, worrying instead about market manipulation and fraud.
To sidestep the problem, Van Eck Securities and SolidX Management (companies that have advocated for a bitcoin ETF) partnered to create another bitcoin-linked financial vehicle. Starting this week, the new product will be quoted on OTC Link ATS, an alternative trading system that isn’t regulated like a typical stock exchange.
However, their new vehicle—a fund that facilitates bitcoin trading for wealthy investors—is not a bitcoin ETF. Even calling it a “limited bitcoin ETF” would be inaccurate, says Jake Chervinsky, general counsel for Compound, a crypto loan company. He pointed to the instrument’s reliance on the SEC’s Rule 144A, which allows “qualified institutional buyers” like hedge funds to trade shares in the product.
"Limited ETF" is a made-up term, not a recognized & regulated type of financial vehicle. Rule 144A is a fairly complex way to eventually make the shares of a private investment trust available on secondary markets. It's not an "exchange-traded fund" in any meaningful sense.
— Jake Chervinsky (@jchervinsky) September 3, 2019
Chervinsky added on Twitter: “The benefits of an ETF (liquidity, price discovery, transparency, investor protections, etc.) depend on a major exchange listing + the structure and requirements that go along with formal ETF approval. Private investment trusts are fine, but don’t provide the benefits of an ETF.”
While the VanEck-SolidX Bitcoin Trust remains a long way from mainstream investors, the fund’s creators remain hopeful it will highlight the potential for a bitcoin ETF. The product could “pave the way for institutional bitcoin adoption” Gabor Gurbacs, VanEck’s director of digital assets strategy, told CoinDesk. He added that it could indicate to the SEC the viability of bitcoin investing for retail users.
A bitcoin ETF could be closer than we think.
BITS AND PIECES
- China’s crypto competitor is being built in a secret office with restricted access (CoinDesk)
- Nation’s digital currency may be world’s first (China Daily)
- Put the money fund on the blockchain (Bloomberg)
- Let’s give a helping hand to Andrew Yang (Financial Times)
- Boxing champ Pacquiao launches his own crypto tokens (Reuters)
Please send news, tips, and whacky financial vehicles to email@example.com. Today’s Private Key was written by Matthew De Silva and edited by Oliver Staley. Take the long way home.
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